As you can see from this chart, lawmakers in this island nation have done a reasonably good job of satisfying Mitchell Golden Rule over the past couple of years. Nominal economic output has been growing by 6.1 percent annually, while government spending has risen by an average of 2.8 percent per year.

If Iceland continues to enjoy this level of growth and can maintain this modest degree of fiscal discipline, the burden of government spending will soon drop below 40 percent of GDP.

As I’ve noted before, fiscal progress can occur very rapidly if spending is curtailed. Consider what’s happened, for example, over the past two years in America. Total federal spending didn’t grow in 2011 or 2012, and that de facto two-year spending freeze has led to a big reduction in the size of the public sector relative to GDP.

And because policymakers addressed the underlying disease of excessive spending, it’s no surprise that the symptom of red ink became much less of a problem with the deficit falling by almost 50 percent in those two years.

First, Iceland isn’t really moving in the right direction. Policy makers are merely undoing the damage that occurred in the latter part of last decade. As recently as 2006, the burden of government spending was less than 42 percent of GDP. So the current period of fiscal discipline is like going on a diet after spending several years at an all-you-can-eat dessert shop.

Second, three years of spending restraint could be a statistical blip rather than a long-run trend, especially since the 2014 numbers from the IMF are an estimate and the 2012 and 2013 numbers aren’t even finalized.

What Iceland needs is some sort of Swiss-style spending cap to impose long-run limits on the growth of government spending. As you can see from this second chart, Switzerland’s “debt brake” has produced more than ten years of spending restraint. Government generally has been growing slower than the private sector, which means that burden of government spending has been falling in Switzerland while other European nations are moving in the wrong direction.

By the way, it’s not just Iceland that would benefit from this type of spending cap. I explained last year that America would never have experienced trillion-dollar deficits if we had something similar to the Swiss debt brake.

But that’s not an argument against a spending cap. We lock our doors and latch our windows even though we realize that determined crooks can still break in. But at least we want to make our homes a less inviting target. Likewise, a spending cap doesn’t preclude all bad policies. But at least it makes it harder for politicians to increase spending.

The ultimate challenge, of course, is figuring out how to convince politicians to tie their own hands. The academic research suggests that spending caps need to be well designed if we want to limit the greed of the political class.

Iceland has made some progress, but Switzerland at this point is a better role model because the debt brake has been very durable.

P.S. If we’re going to copy Switzerland, we also should take a close look at their tax laws. Switzerland has the best ranking in the Tax Oppression Index, while the United States languishes in the bottom half of nations measured.

Americans looking for a way to tame government profligacy should look to Switzerland. In 2001, 85% of its voters approved an initiative that effectively requires its central government spending to grow no faster than trendline revenue. The reform, called a “debt brake” in Switzerland, has been very successful. Before the law went into effect in 2003, government spending was expanding by an average of 4.3% per year. Since then it’s increased by only 2.6% annually.

So how does this system work?

Switzerland’s debt brake limits spending growth to average revenue increases over a multiyear period (as calculated by the Swiss Federal Department of Finance). This feature appeals to Keynesians, who like deficit spending when the economy stumbles and tax revenues dip. But it appeals to proponents of good fiscal policy, because politicians aren’t able to boost spending when the economy is doing well and the Treasury is flush with cash. Equally important, it is very difficult for politicians to increase the spending cap by raising taxes. Maximum rates for most national taxes in Switzerland are constitutionally set (such as by an 11.5% income tax, an 8% value-added tax and an 8.5% corporate tax). The rates can only be changed by a double-majority referendum, which means a majority of voters in a majority of cantons would have to agree.

In other words, the debt brake isn’t a de jure spending cap, but it is a de facto spending cap. And capping the growth of spending (which is the underlying disease) is the best way of controlling red ink (the symptom of excessive government).

Switzerland’s spending cap has helped the country avoid the fiscal crisis affecting so many other European nations. Annual central government spending today is less than 20% of gross domestic product, and total spending by all levels of government is about 34% of GDP. That’s a decline from 36% when the debt brake took effect. This may not sound impressive, but it’s remarkable considering how the burden of government has jumped in most other developed nations. In the U.S., total government spending has jumped to 41% of GDP from 36% during the same time period.

Switzerland is moving in the right direction and the United States is going in the wrong direction. The obvious lesson (to normal people) is that America should copy the Swiss. Congressman Kevin Brady has a proposal to do something similar to the debt brake.

Rep. Kevin Brady (R., Texas), vice chairman of the Joint Economic Committee, has introduced legislation that is akin to the Swiss debt brake. Called the Maximizing America’s Prosperity Act, his bill would impose direct spending caps, but tied to “potential GDP.” …Since potential GDP is a reasonably stable variable (like average revenue growth in the Swiss system), this approach creates a sustainable glide path for spending restraint.

In some sense, Brady’s MAP Act is akin to Sen. Corker’s CAP Act, but the use of “potential GDP” makes the reform more sustainable because economic fluctuations don’t enable big deviations in the amount of allowable spending.

To conclude, we know the right policy. It is spending restraint. We also know a policy that will achieve spending restraint. A binding spending cap. The problem, as I note in my oped, is that “politicians don’t want any type of constraint on their ability to buy votes with other people’s money.”